The Inside Story of Azim Premji's Next Billion Dollar Plan

Premji is anticipating that by 2020, the global market for environment products and services will double from $1.37 trillion
Source:Forbes India Magazine of 03 July, 2009

The same buzz of excitement and serendipity that swept the tiny campus of Wipro in 1977 has returned to its sprawling Bangalore headquarters today. More than three decades after Azim Premji sensed an opportunity in information technology for his consumer products company, the billionaire businessman is taking his next big step, ecology. And just like the way IT did, the new business is likely to transform the face of Wipro forever.

For those who know Premji, it is not uncommon to see the fifth richest Indian on the Forbes List and the 63-year-old chairman of Wipro switching off the lights before leaving office. It is this commitment to avoid waste that has turned Premji’s attention to ecology and sustainability. In October 2008, even as it warned of slowing growth in its main software outsourcing business in the backdrop of a global financial crisis, Wipro released a recruitment ad for two new businesses, Wipro Water and Wipro EcoEnergy. The company has spent the previous two years preparing for this diversification, which may turn out to be the company’s third big change. The first was when a 21-year-old Premji took charge at Wipro after his father’s sudden death; the next was when the vanaspati and soap maker transformed itself into a multi-billion dollar information technology giant in the 80s and 90s.

But for Premji, it’s not just a diversification. “Look at it in three dimensions: As a citizen, ecological sustainability is a global problem but completely unaddressed in India. So how do you influence… your employees, partners, customers? Second what can you do within the company? Third, we see incremental business opportunities that we can create in our existing businesses.” The business idea is simple. For the last quarter century, Wipro has been busy cutting technology and operational costs for some of the world’s largest corporations. Now, it wants to tell them how to cut energy usage and reduce their carbon footprint. It is convinced that green will be the largest force to influence the world economy in the years to come. According to a UN report last year, the global market for environmental products and services will double from $1.37 trillion at present to $2.74 trillion by 2020.

Chief Financial Officer Suresh Senapathy says green services and solutions will bring in up to one out of every four dollars of the company’s revenue, three years from now. In the financial year ending March 2009, Wipro had revenue of more than Rs. 25,000 crore. Even if the revenue were to stagnate, a fourth of it — Rs. 6,250 crore — from ecology is no small amount. The plan also aligns well with Premji’s desire to ease down IT’s profit contribution from 93 percent currently to 70 percent in the next few years.

Today it has 270 people in its water and eco energy businesses. In the last six months it has been setting up eco-friendly infrastructure for clients: A bio-gas plant in Taj Kovalam for recycling organic waste; sustainable lighting, cooling and recycling at Asian Paints’ Greenfield plant in Rohtak, Haryana; LED lights to reduce electricity bills at the Indian Institute of Management, Bangalore campus.

The Idea

The new idea was first thought up by the 41-year-old head of Wipro Infrastructure Engineering (WIN), Anurag Behar. The two new ecology businesses will be housed under WIN. In January 2007, Behar made the first formal presentation about the ecology business to Wipro’s board of directors. The board reacted positively but also advised caution: Ecology was a nascent field with rapidly evolving technology and Wipro should not get locked in a technology that ran the risk of becoming obsolete soon.

Rather than immediately start with manufacturing equipment, Wipro decided to enter the business as a consultant. “It’s the best way to learn about a new space. As you advise your customers, your knowledge base increases and later on if you want to make a bet, it is informed choice,” says T.K. Kurien, President, Wipro Consulting, global programs and strategic initiatives. “If we are in, we know which way the technology is going.”


Wipro’s approach to the business is measured. First, it will calculate the client company’s energy footprint and find a way to reduce that. Then, it will bring in renewable energy technology such as a micro windmill, solar lighting or a biogas plant to make the firm sustainable. But one question keeps coming back. Why should a large company entrust Wipro with all its energy problems, a domain that Wipro is not an expert in? The company is aware of that hurdle. It is also why Wipro is building the business slowly and is reluctant to set a big revenue target for it


Testing Ground

One way in which Wipro has sharpened its learning is to address its own energy problems first. That way, it becomes ecologically sustainable while gaining credibility with external customers.Wipro has turned its 50-acre campus at Electronic City in Bangalore into a test bed. While 25,000 software engineers write code for Fortune 500 corporations, waste food from the cafeteria turns into methane for lighting burners, harvested rainwater is used to cool air-conditioning towers, a paper pulping plant recycles waste paper into writing pads and a micro windmill lights bulbs along the perimeter of the campus. Wipro’s Sarjapur campus a few kilometres away has India’s largest LED installations — all compact fluorescent lamps have been replaced with LED lights, helping save 75 percent in electricity consumption. Since 2003, Wipro has cut water usage in its offices across India by nearly two-thirds.

Wipro is also building its knowledge by making beachhead acquisitions. One of them, Aquatech Industries, offers water purification solutions to industries. In May this year, Wipro signed a contract with the University of North Dakota, a leading expert on clean coal technology. It has tied up with 14 global technology partners and solution providers, ranging from a micro windmill manufacturer in Scotland to GE Energy. In some cases, Wipro will sell the products under its own brand. A lot of this work is systems integration (building a system with diverse components) of which Wipro has considerable experience.

Premji is aware that the only way for Wipro to truly become a “green” company — in its own operations and in offering solutions to customers — is when all business units come together. That’s why over the last one year, he and Behar have been getting other business unit heads to set targets for selling environment-friendly solutions and reducing emissions in their units. For the future, Senapathy says Wipro will evaluate financial and ecological returns before it takes on any new project for investment.


Leveraging IT for Green

Wipro wants to leverage its presence in two industries that directly have an impact on reducing energy consumption — IT and lighting. For instance, it combined lights with sensors so they would switch on and off based on ambient light. That helped Vineet Agarwal, Wipro’s head of consumer care and lighting business, win a large order from the Delhi metro rail project to provide lighting for 27 stations. Today green lighting accounts for 15 percent of Wipro’s lighting business. In fact, IT could play a significant role in helping corporations become green. While IT contributes only 2 percent to the global carbon footprint, it has a big role to play in reducing carbon emissions in the remaining 98 percent of the world’s businesses.

Besides, a green pitch is also a good way to shore up profitability. Operating margins in global IT business have fallen from 28 percent in 2003 to 21 percent last year. A few months ago, Wipro’s Global IT business started an energy consulting practice to offer green IT services to its Fortune 500 customers. In the next three years, Wipro’s goal is to have 10 percent of consulting revenues from green IT consulting (expected revenues: $500 million by 2011). It will invest $10 million to $15 million in the next three years in hiring people and building capability, tools, brand and marketing. “This is the absolute minimum that we are aiming for. If the market really opens up, then much more could be done,” says Girish Paranjpe, joint CEO, Wipro IT business. Green data centres and a carbon accounting tool called Hara (green) that can help a company measure its carbon emissions are some of the other ways in which Wipro is leveraging IT to make organisations more energy efficient.

FOUR GREEN HORSEMEN: Vineet Agarwal, Anurag Behar, Girish Paranjpe and Suresh Vaswani

Follower or Leader?

Wipro is hardly the only one to be thinking this way. Accenture, Deloitte, IBM and BT too are keen on the green IT services space. In November 2008, Gartner and WWF released a report naming the most environment-friendly companies in the information and communication technology sector. BT, Fujitsu, HP and IBM were doing a better job at handling climate change than others such as Cisco, SAP, Nokia and Wipro. Behar, while admitting that Wipro still has a long way to go before it can become completely ecologically sustainable, says that the point most people seem to miss is that Wipro is the only technology company from India that agreed to be tested for its environmental and climate commitment.

The company says ecology is a business for the long haul and that Wipro is now at the same juncture that it was when Premji first started the IT business in India 25 years ago. “No one knew then that offshore could be a $40 billion industry one day,” says Senapathy.

There is also the question of what happens to renewable energy technology at a time when the world economy is facing a slump. Initial cost of installation is higher for renewable energy than conventional energy. On Wall Street, stocks of renewable energy companies have taken a battering and there are concerns that funding for large-scale projects in wind and solar plants is drying up.

Wipro takes a contrarian stance. While the meltdown might hamper projects in the short term, it will work to the benefit of these companies in the long term, because hard times will force companies to look at saving costs by cutting energy bills. The challenge for Wipro is to establish its credentials in a market and industry where it seems to have no natural or geographical advantage. The West is clearly ahead in the game as far as the ecoology business goes. CEO Girish Paranjpe admits that selling these consulting services is currently more of a push from Wipro’s rather than a pull from the consumer.

“Wipro has always done well in following a trend rather than leading it. That’s how we have built our businesses. When everybody is getting into the market that is the wrong time to be going in. After a lot of people have gone bust, we can pick up assets at very good prices.” says Kurien

Vijay Mallya's Double Life

Vijay Mallya's Double Life
Beneath the cheerful opulence is a seasoned warrior battling to save his debt-ridden empire
Forbes India Magazine of 05 June, 2009

Burning tyre at Formula 1 races in Kuala Lumpur, Shanghai and Bahrain, cheering filly Set Alight at the Mumbai Derby, galloping to South Africa to watch Royal Challengers battle at the Indian Premier League (IPL). April was busier than usual for Vijay Mallya. But VT-VJM, his corporate jet that boasts of a Picasso as part of its beige and cream interiors, made it a breeze for the flamboyant booze baron. May has proved equally busy. As the IPL winds down, the corporate jet touched down in the south of France, the playground of the rich and famous. There, the Cannes film festival that brings together the glitterati and global media provided the perfect setting for Mallya’s big party. Previously, he had held parties at Cannes on his 312-foot yacht Indian Empress or at plush seven star hotels. But there’s no need for that anymore. Just a 10-minute boat ride away, on the picturesque island of Sainte Marguerite, is a $60-million villa that he owns. The black-tie event was hosted there on May 16.

Yet, in the middle of all this, Mallya has been leading a double life. He has spent the past few months negotiating for the survival of his empire. His debts have zoomed. So have his losses. The economic slowdown has made his daring bets of the boom period look like risky gambles. He must stem the losses, or even the healthier parts of his business will fall prey.Since April, Forbes India has tried to get in touch with Mallya as well as the senior management of his group companies in Mumbai and Bangalore for this story. But the officials have been consistently travelling or too busy to respond.

Mallya has accumulated about Rs. 14,000 crore worth of debt spread across his liquor and airline businesses through costly acquisitions of global liquor companies like Whyte and Mackay and a bleeding balance sheet courtesy Kingfisher Airlines. In an email to Forbes India just before we went to press, Mallya said the number is “grossly overstated”. Refusing to answer a specific question on the debt he said, “The UB Group comprises several independent public and private companies…. Each independent company has its debt and its cash-flows and there is no case for aggregation.” However, a look at the published results for six listed companies in the group reveals a total debt of Rs. 14,231 crore for Kingfisher Airlines, United Spirits (USL), UB Holding, Mangalore Chemicals, UB Engineering and United Breweries (UB).

Supersonic Loss-making

At the core of this battle is Kingfisher Airlines, losing cash at an alarming rate in the middle of the decade’s biggest fall in passenger turnout. The debt on the airline’s books is over Rs. 5,000 crore, much of it guaranteed by United Breweries Holding Ltd., the group’s holding entity. As the airline’s monthly losses have crossed Rs. 200 crore, Mallya has no option but to push for more corporate guarantees from his other companies. Already, UB Holding is seeking shareholder approval for doubling the limit of its corporate guarantees to Rs. 12,000 crore. Most of these will be to support loans taken for Kingfisher Airlines. It’s a pressure cooker situation inside the airline, say insiders. Four months ago, aircraft leasing company GE Commercial Aviation (GECAS) wrested back four jets it had leased to Kingfisher after the airline defaulted on lease payments. Since then, dozens of other lenders and suppliers have begun turning the screws. Among them are oil companies who have threatened to stop supplying fuel, unless Mallya settles their dues of nearly Rs. 1,000 crore.

The face of the smiling host at the French Riviera hardly showed it, but panic is spreading within the UB group. At Kingfisher, Mallya’s attempt to stem the cash burn has yielded few results and the cash-burn continues this quarter. Five of the A330 aircraft that Mallya so fondly fitted with bars, bartenders and chefs are either parked at airports or flying with many empty seats. The lease rental for each of the long-haul planes is about $1 million a month (Rs. 5 crore), and they are being used to operate the airline’s two international flights to London and Colombo.

If you took a peek into Mallya’s second life in the past two-three months, you would see him stalking the dusty corridors of the ministries of finance and aviation in Delhi, schmoozing with junior bureaucrats that he would have otherwise never condescended to acknowledge. The purpose? To lobby for soft loans and softer terms for airline repayments plus permission for foreign airlines to invest in Indian carriers. But the policy is in a flux and his bitter rival, Naresh Goyal of Jet Airways, has managed to counter-lobby and delay a decision till now.





Between the Cup and the Lip

Mallya’s golden goose, of course, is his alcohol business. Both beer and white spirits have been growing at 20 percent, the highest for any liquor company globally. USL has 52 percent market share. It is this edge that Mallya will try to cash on. It is quite another matter that the company has debts of Rs. 6,225 crore weakening its bargaining position. He has explored deals with Asahi and Bacardi, before starting protracted talks with the world’s largest liquor company, Diageo, to sell a stake in USL. He hasn’t yet accepted the offered price. It’s a game of brinkmanship.

But his counterparties know he is neck-deep in debt and must sell quickly. Earlier this month, the Diageo Asia-Pacific President John Pollaers said, “We have been in discussion, but we haven’t yet been able to find a structure that is acceptable to both partners. We shouldn’t assume that this will lead to a transaction overall.” USL stock price fell 8 percent on the day Mallya issued a statement saying talks were still on and were slow because of anti-trust tangles.

A lesser businessman might have caved in under the burden but not Mallya. The celebrations seem to go on forever. He is waiting for that magic moment when all the deals will materialise and blow away the debt. “I’ve never seen Vijay even remotely ruffled. He is super confident that he’ll be able to get things to work out,” says a leading banker who does business with Mallya but prefers to stay anonymous.


Between Life and Debt

Those who know him closely say he will pull through, just like he has done on many occasions in the past. Playing a high-stakes game has always been Mallya’s style. “Vijay has always been up to his eyeballs in debt,” says a senior investment banker, who does not wish to be quoted because he’s worried that he would be barred from the grand parties on Mallya’s yacht.

Not all is lost yet. This month, one confidence building measure he managed to swing is a marketing agreement with Dutch beer maker Heineken to sell the latter’s brands through the UB network. The deal is expected to fetch UB Rs. 300 crore

You’ve got to grant Mallya one thing: Not many tycoons can hope to mix champagne with debt covenants as adeptly as he does — and still retain their spunk

But the alarming levels of debt have spooked bankers. So while Mallya is pushing for a package of about Rs. 2,000 crore to pull his airline out from the brink, negotiations have been hard and the bankers are insisting on tough contracts, like securitised payments that mortgage the future earnings of the airline. “With more money being borrowed to fund higher losses, there is a danger of getting into a debt-trap,” says one banker working on the deal. Also, there is no sign of any meaningful turnaround in the business, which the bankers were promised early this year.

As of now, it is a battle of attrition between the bankers and the UB group financial team led by Mallya and his lieutenant Ravi Nedungadi, who has seen him through several tight corners. “He is a man with many lives,” says Ravi Jain, promoter of wine company Vallee de Vin and one who has worked at close quarters with Mallya at Shaw Wallace. He echoes popular belief when he says, “He just needs to hang in there for some more time. Things will change when the market recovers.”


Time is Running Out

Mallya urgently wants to conclude at least two deals. First, he has set a target to raise $800 million for a 14.9 percent stake in USL. Diageo is likely to be the partner for this, though he has not stopped talking to Asahi or Bacardi. He is also banking on a 49 percent stake sale in Scotch whisky maker Whyte and Mackay with a distribution management deal. If this works out, he’s hoping to make USL debt-free in one fell swoop. Mallya is also said to be negotiating with private equity firms for offloading a large stake in USL and Whyte and Mackay.

Mallya confirmed in his email response that there was strong interest from PE players. So till these two deals are consummated, Mallya has to hang in there. But before that, he’s got to take some hard decisions in his airline business. Over the past six months, the situation has become precarious: Overall capacity in the market has fallen with most airlines pruning operations.

“In Kingfisher’s case, the problem was that Mallya had his foot on the accelerator till much too late,” says Nigel Harwood, now CEO of Interglobe Aviation but who had been the CEO of Kingfisher Airlines during 2005-06. Even as global airlines started to hurt from overcapacity, Mallya relentlessly pursued new purchases that have led to the current mess.

One immediate way out is to stop international operations and focus on domestic flights. (The airline operates daily to over-served routes to London from Mumbai and Bangalore.) But this could be hard for Mallya who was personally involved in charting the flight plan for the global rollout to connect Europe, Singapore, Dubai and San Francisco.

A possible cut-back also means Mallya will have to play second fiddle to the man he loves to hate: Naresh Goyal, the London-based owner of Jet Airways. Mallya had vowed that he would best Jet and snatch the title of the king of the skies from Jet. So instead of pushing back, he forged ahead with plans for a new Bangalore-Dubai flight from June 25. Mallya remains hopeful that the new government would allow Indian airlines to sell a stake to foreign investors, but even if that happens, at current valuations, he is unlikely to get more than Rs. 500 crore for 49 percent of Kingfisher Airlines.

Till his deals fructify at the valuations he seeks, Mallya is hoping that a team of public sector banks share his burden. He has managed to get audiences with the chairmen of at least three PSBs, including State Bank of India, to ask for a new line of credit for his floundering airline. In his meetings in North Block with the joint secretary of banking, Mallya has relentlessly pitched for loan restructuring and easier terms from lenders. His argument: Airline companies were hit first by rising oil prices and now by depressed demand, and need help. SBI has already provided Rs. 500 crore of an approved loan of Rs. 900 crore. Other PSU banks are expected to chip in with about Rs. 1,000 crore more.

It’s only a matter of time before the king of good times gets a lifeline thrown to him to fly high all over again.

(Vijay Mallya was born on December 18, 1955. He is the Chairman of the United Breweries Group and Kingfisher Airlines, The United Breweries Group`s flagship beer brand; Kingfisher is famous across the world.
Mallya`s hometown is Bantwal, Mangalore in Karnataka. He finished his degree from St. Xavier`s College, Calcutta. He later set up business ventures in Dubai, United Arab Emirates. Mallya married twice so far. His first wife was Sameera and they have a son together, named Sidhartha Vijay Mallya. Later on, he got married to Rekha and has two daughters Leana and Tanya Mallya and one son.
In 1983, Mallya took over as Chairman of the United Breweries Group. Under his leadership the group has expanded significantly to turn into a multi billion dollar conglomerate. His group is engaged in several business activities like alcoholic beverages, life sciences, engineering, agriculture, chemicals, information technology, aviation and leisure.
In 2005 he acquired Millennium Breweries Ltd which brought the two premium beer brands named Sandpiper and Zingaro under his kitty. In May 2007, United Breweries Group acquired the Scotch whisky maker Whyte & Mackay for 595 million pounds in an all cash deal.
Vijay Mallya formed Kingfisher Airlines in the year 2005. Mallya`s Kingfisher airlines acquired Air Deccan, a low cost Indian airline which was subsequently integrated into his Kingfisher fleet, Vijay Mallya and his Jet Airways counterpart Naresh Goyal joined hands together after a marathon meeting on 13th October 2008 at Mumbai, India. The alliance will include code-sharing on both domestic and international flights, joint fuel management to reduce expenses, common ground handling, and joint utilisation of crew and sharing of similar frequent flier programme.)